Monday, August 29, 2011

In previous articles, I have occasionally mentioned “red flags” which every potential investor unconsciously listens for. Other writers, like Guy Kawasaki, have irreverently called some of these “entrepreneur lies,” but I prefer to think of them as innocent over-enthusiasm or over-confidence that can kill your deal.

At any rate, here is my summary of the top ten from my experience with hundreds of elevator pitches, business plans, and executive presentations:

“Our product is truly disruptive technology.” If your product really represents a paradigm shift, you probably haven’t figured out yet what problem it solves. At best we can count on it taking many years to catch on, just like other disruptive technologies before you. No investor wants to wait that long for his return, or fund the years of waiting.

“Gartner says our market will be $50 billion in 2015.” It always amazes me how an entrepreneur can define his market opportunity so broadly, then assess his competition so narrowly in the next breath. You won’t impress investors by claiming that everyone in China needs one, and nobody else has exactly the same features to compete with you.

“All we have to do is get 1% of the market.” This red flag is the flip side of “the market will be $50 billion.” There are two problems with this assertion. First, no investor is interested in a company that is only looking to get 1% of a market. Second, that first 1% is the toughest of any market, so you look naïve implying it's easy to get.

“We don’t believe there are any competitors.” This is a terrible statement because there are only two logical conclusions. A first conclusion is that there must not be a market. Or worse yet, the entrepreneur is so arrogant that he hasn’t even used Google to figure out he has competition just down the street.

“Microsoft is too big/slow to be a threat.” Usually the reason the big companies are no threat is that the market is too small. Competing with IBM, Microsoft, and other large companies is a very difficult task. Entrepreneurs who utter this line are kidding themselves. They may think it's bravado, but investors think it's stupidity.

“We have the first-mover advantage.” That’s probably the soft way of saying, we don’t have a patent or any “secret sauce” for a competitive advantage. Unfortunately, a startup with no brand name and no intellectual property is a sitting duck for the big slow company, as soon as they see you gaining a bit of traction. Sleeping giants do wake up.

“Our projections are conservative.” A startup's projections should never be conservative. Plus I have never seen a startup achieve even their most conservative projections. We all know that financial projections are a confidence test on how committed you are to the project, so don’t try to minimize them.

“We have a proven management team.” If the entrepreneur and team were that proven, they probably would be funding others rather than asking for money. Truly proven in an investor’s eye is a team that has both failed and succeeded at least once, with success meaning 10x or more return to investors.

“A world-class CEO will be joining us after the funding event.” It’s easy to get your executive friends to express interest in the huge opportunity you describe, but don’t assume they will actually take the big leap down from their high-paying job to the meager salary you can offer. Rest assured the investor will ask for names, and place some calls. Hedges here by your candidates will definitely kill the deal.

“We have strong interest from a major customer.” The mention of unsigned contracts normally takes away more credibility than it adds. You can counter this position by bringing the interested party to the meeting for support, or at least showing a Letter of Intent (LOI). Otherwise talk about paying customers only.

I highly recommend that you screen your business plan and your executive presentation carefully for variations on any of these statements, and remove them. Your integrity and honesty are you best assets, so don’t jeopardize them with common over-statements, even if your intent is virtuous.

Monday, August 22, 2011

For some reason, I haven’t heard much about the next generation of the Internet (Web 3.0) lately, which probably means it isn’t happening as fast as everyone predicted. It’s already a couple of years behind schedule from my perspective. I suspect the real challenge is not the semantic web technology, but new attractive business models from smart entrepreneurs.

Micro-blogging. This is the ability to share your thoughts with a minimum number of characters. People are busy, with limited time, so why not get right to the point of the story, in 140 characters or fewer? Examples include Twitter, Plurk, and Jaiku.

Virtual reality worlds. These are places users visit to interact with others from around the world in a 3-D setting. Meetings are conducted in these spaces, and trade shows are being replaced with virtual reality shows. Examples include Second Life and Funsites.

Extended personalization. Web 3.0 will allow visitors to create an ever more personal experience. They are starting to expect their name to appear at the top of Web sites, personalized e-mails, and even advanced checkout options that suit their habits. Examples include SendOutCards, Google, and Amazon.

Mobile smart phones. There are billions of cell-phone users throughout the world, a number much larger than those who use PCs. Consumers are surfing the Web, purchasing products, and becoming instant photo journalists from their iPhone and Blackberry. As mobile takes a greater share of the market, test management tools will be necessary to maintain a consistent delivery to all devices.

Real time on-demand collaboration. Users can now interact in real time on documents, collaboration, including making changes. Many software-as-a-service (SaaS) applications now allow on-demand collaboration. Examples include Google Docs, Salesforce.com, Slideshare.net, and Box.net.

According to Tasner, who is a marketing guru, business models and marketing in the Web 3.0 environment will need the most dramatic changes to be consistent with the new culture and technology. These include:

Adapting to mobile, the largest and fastest-growing Web 3.0 trend. Marketing messages have to be adapted and directed to the smart phones, which all have web access, e-mail, video, texting, as well as voice.

Accommodate the resistance to sharing all information with everyone. People are more and more worried about personal privacy and identity theft. This is driving a trend towards micro-community sites and smaller, more specialized social sites. Marketers need an effective presence on these sites for credibility and trust.

People on the Web now include everyone. Twelve-year-olds are running million-dollar-social networks, your grandma is tweeting, and your long-lost cousin runs a popular tribe on Second Life. This trend is escalating, and will not change.

The key driving factors to Web 3.0 include mobile and residential phones with high quality video, virtual shows surpassing live events, more intelligent semantic search information, and the openness of the Web. If you are a true entrepreneur, by now your head should be spinning with the possibilities. What do you see as the throttle?